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The Impact of Foreign Aid on Economic Growth in Ethiopia

Abstract:

<p>This paper uses as econometric model to examine the interactions among foreign aid, external debit and economic growth. The empirical findings reveal that aid has a positive but insignificant effect on economic growth while investment has a positive significant impact. Since the direct impact of foreign aid is significant, an attempt is, therefore, made to take the analysis further to investigate the impact of foreign aid on investment and imports which are some of the cannels through which aid impacts on growth. The results indicate that there is a positive and significant relationship between foreign aid and investment. However, there is no evidence of overhang and crowding - out effects of debate on investment. The result also reveals that positive and significant relationship between and imports confirm that aid has been filling the foreign exchange gap and meeting the import bill. Foreign aid, therefore, contributes to growth by facilitating greater imports and investment as long as it is backed by conductive government policies</p>